Market Tension: Investors Worry Boomer Demand Not Keeping Pace With Senior Housing Supply
Overbuilding remains a major concern for senior housing owners and lenders. Record levels of new supply outpaced demand in the first three months of the year, and the second quarter did not fare much better.
Those headwinds have not deterred capital from seeking a foothold in the saturated industry, however, JLL reports. Studies show 10,000 boomers turn 65 every day. As the second-largest living generation in the U.S. (more than 74 million Americans) continues to age, demand remains strong and the asset a hot addition for investors' portfolios.
These are the major trends stirring in senior housing coming out of spring 2017, according to research from commercial brokerage JLL.
On average, occupancy for senior housing assets hovered around 90% — down 190 basis points from the cyclical high. Independent living occupancy levels are the strongest among senior housing property types, pulling up the sector’s average as memory care and assisted living assets report marked declines due to new supply. Markets particularly suffering from memory care and assisted living overbuilding include Dallas, Houston, San Antonio and Las Vegas.
With the wave of baby boomers reaching the age of retirement on a daily basis, it is no wonder investors are so partial to the asset. There is no shortage of capital being deployed in senior housing assets as demand remains robust, and JLL estimates senior housing demand will double between 2017 and 2035.
Still, experts say the building boom is a bit premature as most seniors will not enter senior living facilities until they are well into their 80s. JLL predicts 2021 will be the year worth following in the sector, as that is when the first wave of boomers are set to hit 75.
Demand is pushing senior housing developers to break the molds of the past. As more seniors look to retire in style, developers are increasingly turning to urban markets and expensive infill sites to build taller high-rises. Americans' shifting live-work-play preferences in favor of city life and urban metros has translated to baby boomers as well. Seniors are paying big bucks for housing in more vibrant, 18- and 24-hour cities with an assortment of amenities that include a community filled with retail, restaurants and entertainment offerings right outside the door.
Assisted living and memory care occupancy levels have suffered from overbuilding. Developers have been heavy on these assets since the financial crisis, as they were deemed resilient with strong returns during the Great Recession. Another perk: These assets are typically smaller and cheaper to build.
The result is an abundance of product within the Texas markets, Denver, Chicago, Detroit, Salt Lake City and several markets in Florida, JLL reports.
